The Bank of Canada opted to stay the course in a statement-only interest rate decision Wednesday, leaving its benchmark rate at 0.25 per cent, while reaffirming that timing for its first post-pandemic rate hike will still likely fall somewhere in the “middle quarters” of 2022.

While the decision to keep borrowing costs historically low came as no surprise to Bay Street economists, the Bank itself was given something of a surprise with the emergence of the Omicron variant, which was first detected not long before its final meeting of 2021. 

In its statement, the central bank said the Canadian economy has enough momentum to power through the still-unknown threat of Omicron, as well as persistent supply chain bottlenecks. 

Here’s how Bay Street is reacting to Governor Tiff Macklem’s statement:

Josh Nye, senior economist at RBC

The BoC was held back by Omicron uncertainty but today's statement suggests that as long as that risk doesn't intensify in the next seven weeks, the BoC will sound more hawkish in January. Markets are now pricing roughly 50/50 odds of a rate hike at that meeting, though we think it’s more likely the BoC will signal upcoming rate hikes rather than actually raising rates in January.

Derek Burleton, deputy chief economist at TD

I do think the next major move before we see quantitative tightening, which is allowing more run-off, will be higher interest rates. That seems to be the pattern they’re following… We’ll watch for the Omicron situation, there’s still uncertainty there… I think that’s something that will stay most central banks hands’ in the very near term, until we get a clearer picture there. Assuming we get through this without any major negative results from the scientific studies, January could still very much be in play [for a rate hike].

Earl Davis, head of fixed income and money markets at BMO Global Asset Management

The market has already discounted a lot of hikes over the next two years. You’re already seeing that in mortgage rates right now, and for people who are getting into housing. The other thing, too, is typically terms are five years here in Canada, so people have a bit more certainty, it’s not like they’ll go over a cliff in terms of mortgage rates on the population as a whole. They [the Bank of Canada] have a heightened awareness of [housing], but the concern level right now is moderate.

Karl Schamotta, chief market strategist at Cambridge Global Payments

If we do see interest rates rising and we see expectations of interest rates climbing even faster, that is going to take a lot of heat out of the housing market. That’s going to put downward pressure on resale activity, on building, on speculation in the market, and ultimately the biggest factor that will happen there is a psychological hit… in other words Canadians will not feel terribly rich, and won’t be consuming at the same level they are now. 

Stephen Brown, senior Canada economist at Capital Economics

While our policy rate forecasts for next year are now similar to the profile implied by overnight index swaps, we expect the Bank to be forced to pause its tightening cycle once the policy rate reaches 1.25 per cent, due to the negative consequences of higher borrowing costs for the housing market.

Avery Shenfeld, chief economist at CIBC Capital Markets

Today's BoC statement still gave a nod to the uncertainties inherent in the pandemic and the arrival of the Omicron variant, and given the potential impacts on household behavior, that should still be enough to forestall a January rate hike. But if the winter COVID wave fades out, as some epidemiologists still expect, the Bank will be ready to rumble in its fight against inflation, and including an initial quarter point in April, we expect to see about 150 bps in total rate hikes over 2022-23.

Doug Porter, chief economist at BMO Capital Markets

One has to dig deep in this statement for any big hints on any shifts in policy, suggesting that we are still on track for April as the earliest likely move by the Bank. But, given the ongoing heat in inflation, a near-complete recovery in employment markets, torrid housing, and a well-behaved currency, April does now indeed look like the lift-off date for rate hikes. 

Frances Donald, chief economist and head of macro strategy, Manulife Investment Management

This is a central bank that wants to hike. They continuously tell us the economy's doing great. Today, we heard from the Bank of Canada that the labour market has essentially absorbed all of its slack that, there's still a lot of inflation in the system - this is a central bank that wants to go but it's telling us probably not until the middle of the year, so it makes sense to anticipate one or two rate hikes from the Bank of Canada in 2022. And yet, that is not the real call here. The call is that the market is pricing in almost five rate hikes from the Bank of Canada versus one or two in the United States. So even if we were going to get rate hikes from the BOC in the next year, that's already priced. And when you're thinking about which side of that bet do you want to take? It's pretty easy to say getting more than five hikes for the Bank of Canada in 2022 - that seems pretty unlikely. In the U.S., however, it’s really not priced for that level of hawkishness so you’re getting this big divergence in terms of what are markets expecting. And I suspect we're also going to see a big divergence in terms of what central banks deliver between the two countries.